The smart leader's gamble: Fail small, win big

In a Federal Computer Week column published last year, former General Services Administration official Frank McDonough questioned the value of “grand designs” — large-scale plans that never seem to work as expected.

A new book by management consultant Peter Sims seeks to blow the whole concept out of the water. In “Little Bets: How Breakthrough Ideas Emerge From Small Discoveries,” Sims argues that the most likely road to success with anything new is to make a series of small efforts, be willing to fail and incorporate the successes into an ever-growing initiative that can ultimately accomplish the same goals that a grand design might attempt.

Here are some excerpts from the book.

The seed of this book was planted while I was attending Stanford Graduate School of Business. One of the most common things I would hear people say was that they would like to do something new — take an unconventional career path or start a company — but they needed a great idea first. I had worked before then as a venture capital investor, and in that work, I had learned that most successful entrepreneurs don’t begin with brilliant ideas — they discover them.

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Ironically, this would include the biggest business idea to come out of Stanford in decades. Google founders Larry Page and Sergey Brin didn’t set out to create one of the fastest-growing start-up companies in history; they didn’t even start out seeking to revolutionize the way we search for information on the Web. Their first goal, as collaborators on the Stanford Digital Library Project, was to solve a much smaller problem: how to prioritize library searches online.

In working through possibilities for doing so, their clever innovation was to realize that the best way to prioritize the results was to measure how many other citations referred to a source. In the academic world, work is often judged by the number of other papers or books that cite it. So, if you wanted to search for books about Joan of Arc, the Joan of Arc book that was cited the most by other Joan of Arc sources would appear first. This insight was the core of their now famous PageRank algorithm.

Yet even after they realized how powerful their search algorithm was and formulated their much more ambitious goal to “organize all the world’s information,” they still had not identified the company’s breakthrough revenue engine. Borrowing an idea from a company called GoTo.com (renamed Overture), Google then created AdWords, an automated, auction-based system that allowed advertisers to display ads next to specific search terms. Once AdWords became the company’s flagship product, Google’s revenue growth exploded. Page and Brin did not begin with an ingenious idea, but they certainly discovered one.

The pioneering bookseller Amazon also embraces an experimental discovery mentality. Led by founder and CEO Jeff Bezos, Amazon’s culture breathes experimentation. Employees there are encouraged to constantly try things and develop new ideas. It’s such an important goal of the company to provoke this that whether or not employees are doing so is a part of their performance reviews.

Many efforts turn out to be dead-ends, Bezos has said, “but every once in a while, you go down an alley and it opens up into this huge, broad avenue.”

Bezos has accepted uncertainty; he knows he cannot reliably predict which ideas for new markets will work and which won’t. He’s got to experiment. One such example is a feature the company launched that would compare a customer’s entire purchase history with its millions of other customers in order to find the one person with the closest matching history. In one click, Amazon would show you what items that customer purchased.

“No one used it,” Bezos has said. “Our history is full of things like that, where we came up with an innovation that we thought was really cool, and the customers didn’t care.”

The growth mind-set

By advocating the little bets approach, I am in no way arguing against bold ambition. Ambitious (dare I employ the overused word "audacious"?) goals are essential. Jeff Bezos and the Google founders would never have done anything great without them. A big vision provides the direction and inspiration through which to channel aspirations and ideas.

But one of the most important lessons of the study of experimental innovators is that they are not rigid in pursuit of that vision, and they persevere through failures, often many of them. When they run into problems, they accept that they must go down some unexpected paths in order to get to the ultimate goal or maybe even redefine what that ultimate goal should be. This requires being willing to walk away from ideas that seemed great, overcoming significant challenges and coping with the emotional impact of failure. This is, of course, much easier said than done.

By expecting to get things right at the start, we block ourselves psychologically and choke off a host of opportunities to learn. In placing so much emphasis on minimizing errors or the risk of any kind of failure, we shut off chances to identify the insights that drive creative progress. Becoming more comfortable with failure — and coming to view false starts and mistakes as opportunities — opens us up creatively.

Learning a little from a lot

Sims describes an experiment in which psychologist Richard Wiseman asked self-professed lucky and unlucky people to count the number of photographs in a newspaper. The unlucky people overlooked a message on the second page telling them the answer — in type that was more than 2 inches high — because they were fixated on finding the photos.

Wiseman found that lucky people tend to be open to opportunities — or insights — that come along spontaneously, whereas unlucky people tend to be creatures of routine, fixated on certain specific outcomes. In analyzing behavior patterns at social parties, for example, unlucky people tended to talk with the same types of people, people who are like themselves. It’s a common phenomenon.

On the other hand, lucky people tended to be curious and open to what can come along from chance interactions.

Wiseman believed another type of behavior played an even greater role in success. He found that lucky people build and maintain what he called a strong network of luck. This was Wiseman’s core finding: You can create your own luck.

“I discovered that being in the right place at the right time is actually all about being in the right state of mind,” he said.

Lucky people increase their odds of chance encounters or experiences by interacting with a large number of people. Extraversion, Wiseman found, pays opportunity and insight rewards.

Small wins

The Starbucks we know emerged by carefully adapting to customer feedback through a series of small wins. In fact, founder Howard Schultz described Starbucks’ mentality as “the value of dogmatism and flexibility.” As long as ideas were in accordance with company principles, Schultz believed they should just say yes to customer requests.

So, for example, Schultz was initially determined to avoid using nonfat milk because he didn’t think it tasted as good as regular milk and because it was at odds with the Italian coffee experience. When customers kept requesting nonfat drinks, Schultz relented. The success of those drinks became an important small win and soon much more: Nonfat milk would grow to account for almost half of Starbucks’ lattes and cappuccinos.

“In hindsight, the decision looks like a no-brainer,” Schultz wrote in "Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time." But that direction wasn’t obvious; it was the fast pace of sales that proved the point.

Some of the benefits of small wins are easy to appreciate. For one, as psychologist Karl Weick described, they help build momentum and can be the crucial boost to beat back the inevitable frustration of any creative endeavor.

Take the case of agile software development. Recall that, in agile development, software emerges through an ongoing discovery process. Key to this is that developers seek out small wins to validate their direction. Once Version 1.0 of a feature is released, developers look for evidence that customers either like the specific feature or to clarify the problems to be solved. Sometimes they must shift their focus completely.

When the developers get positive feedback from users, customers are satisfied and more receptive to the next idea, and software developers are also more motivated because they’ve accomplished something they’ve seen get a good response. In addition, other stakeholders, such as managers or investors, gain confidence that the agile process is working effectively. According to Weick, “a series of wins at small but significant tasks...reveals a pattern that may attract allies, deter opponents and lower resistance.”